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First Cut: Housing starts slip in May while remaining on a firmer upward trend

Housing starts slipped 0.9% in May to 1.269 million units (SAAR). This was a small decline that kept the level firmer relative to the slowdown in starts in the second half of 2018. Starts were down 6.4% for single-family units and up 10.9% for multi-units. The back down in starts for single-family units probably reflects a return to the underlying pace of construction in that sector after an uptick in April. Multi-units could be experiencing increased demand as some first-time homebuyers enter the market via townhomes and condos. In any case, the level was above the median expectation in a forecast survey and speaks to a healthier housing market after a decline in mortgage interest rates.

Compared to a year-ago, starts were down 4.7% with single-family down 12.5% and multi-units up 13.7%.  The 1.322 million units in May 2018 was just below the peak of 1.335 units in January 2018. The comparison is a little unfair given the vigor in the housing market in the first half of last year. But conditions seem to be improving in proportion to the recent drop in mortgage rates.

By region, starts have been bouncing up and down due to weather and atypical seasonal housing demand that was prompted by the sudden decline in rates. Starts in the Northeast fell 45.5% in May after a sharp 61.4% rise in April. The Midwest declined 8.0%, only partly retracing the 31.8% jump in the prior month. The South had an 11.2% increase that more that surpassed a 3.4% dip in April. The West continued to see momentum lost after the 31.1% rise in March to up 3.3% in April and down 2.4% in May.

The level of permits issued has been less volatile than that for starts, reflecting steadier underlying demand for new residential construction. In May, permits edged up 0.3% to 1.294 million units (SAAR) with single-family units up 3.7% and multi-units down 5.0%. Builders may be seeing better demand for one family units as affordability improved with lower rates. Compared to May 2018, permits issued were down 0.5% with single-family off 3.3% while multi-units were up 4.6%.


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